Excerpts from analyst's report
RHB Research analyst: Jarick Seet
 NextInsight graphicsFuyu has implemented a dividend policy of paying out at least 50% of PATMI. We think it is likely to pay even more, eg 100% of earnings, due to its strong cash-generative operations as well as strong net cash position, which represents about 75% of its current market capitalisation. We also expect the company to implement its share buyback programmes. In addition, with recent privatisation and M&A activities heating up, we think that Fuyu could be an attractive target for a takeover, especially by its peers. Maintain a conviction BUY, with a SGD0.29 TP (47% upside). |
50% of PATMI or more. Fuyu has implemented a dividend policy of paying out at least 50% of its PATMI. We think that it is likely to pay out even more of a percentage, such as 100% of earnings, due to its strong cash-generative operations which generate about SGD20m-30m a year, as well as its strong net cash position which represents about 75% of its current market capitalisation, coupled with its plans to just maintain capex around FY15 levels. This dividend policy would at least reassure shareholders that management is keen to reward them consistently (like we highlighted previously) – which dispels any doubts that FY15’s attractive payout level was a one-off affair.
Share buyback programme likely to be implemented. With the excess cash, we think that management is likely to use some of it to implement a share buyback programme, coupled with a pro-shareholder active dividend policy in order to meet the minimum trading price of SGD0.20 as required by SGX.
| Attractive privatisation/takeover target |
 "With privatisation and M&A activities heating up in the Singapore market recently, Fuyu may be an attractive and potential target for a takeover, especially by its peers, due to its strong cash-generative operations, high net cash position and low valuations."-- Jarick Seet (photo) |
Maintain conviction BUY with a DCF-backed TP of SGD0.29. Fuyu is a safe haven full of cash, with strong cash flow generation and high dividend yield (11.4% in FY16F). With pro-shareholder policies starting to be implemented, like its dividend payout policy of at least 50% of PATMI, we think that more of such policies could gradually roll out, eg a share buyback programme.
We also think that Fuyu is an attractive takeover target, especially by its peers. Despite such a tough macro environment, we expect it to tough it out like it has always done and focus on profitability – with additional cost-cutting and right-sizing measures to carry on in FY16.
All in all, we think that Fuyu is a solid investment in tough markets and maintain our conviction BUY, with a DCF-backed TP of SGD0.29 implying 12.8x FY16F P/E. Key risks: Depreciation of the value of the USD and an economic recession.
